This is the first project of our SMU Fintech Bootcamp.
This project is a quantitative analysis of 5 of the 6 ARK ETFs. Our goal is to see how much investment potential these ETFs have based on key risk-management metrics: the daily returns, standard deviations, Sharpe ratios, and betas. We will be working on a Jupyter Notebook and visualizing all of our data using hvplot to create interactive visualizations as well as running an MC Simulation at the end to forecast the returns of these ETFs over the next 30 years.
Quantitative analysis (QA) in finance is an approach that emphasizes mathematical and statistical analysis to help determine the value of a financial asset, such as a stock or option. Quantitative trading analysts (also known as "quants") use a variety of data—including historical investment and stock market data—to develop trading algorithms and computer models.
The information generated by these computer models helps investors analyze investment opportunities and develop what they believe will be a successful trading strategy. Typically, this trading strategy will include very specific information about entry and exit points, the expected risk of the trade, and the expected return.
The ultimate goal of financial quantitative analysis is to use quantifiable statistics and metrics to assist investors in making profitable investment decisions. In this article, we review the history of quantitative investing, compare it to qualitative analysis, and provide an example of a quant-based strategy in action. (Investopedia)
Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted due to the intervention of random variables. It is a technique used to understand the impact of risk and uncertainty in prediction and forecasting models.
A Monte Carlo simulation can be used to tackle a range of problems in virtually every field such as finance, engineering, supply chain, and science. It is also referred to as a multiple probability simulation. (Investopedia)
An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. Typically, ETFs will track a particular index, sector, commodity, or other asset, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to track specific investment strategies.
The first ETF was the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index, and which remains an actively traded ETF today. (Investopedia)
The ARK ETFs are a set of six exchange traded funds offered by ARK Invest, an investment firm started by Catherine Wood. Each ETF specializes in a certain sector.
ARKK is the Innovation ETF.
ARKQ is the Autonomous Tech. & Robotics ETF.
ARKW is the Next Generation Internet ETF.
ARKG is the Genomic Revolution ETF.
ARKF is the Fintech Innovation ETF.
ARKX is the Space Exploration & Innovation ETF. (This fund is brand new and thus lacks the historical data needed to run an analysis so we left it out.)
Cathie registered ARK Investment Management LLC (“ARK”) as an investment advisor with the U.S. Securities and Exchange Commission in January 2014. With over 40 years of experience identifying and investing in innovation, Cathie founded ARK to focus solely on disruptive innovation while adding new dimensions to research.
Prior to ARK, Cathie spent twelve years at AllianceBernstein as CIO of Global Thematic Strategies where she managed over $5 billion. Cathie joined Alliance Capital from Tupelo Capital Management, a hedge fund she co-founded, which in 2000, managed approximately $800 million in global thematic strategies. Prior to her tenure at Tupelo Capital, she worked for 18 years with Jennison Associates LLC as Chief Economist, Equity Research Analyst, Portfolio Manager, and Director. She started her career in Los Angeles, California at The Capital Group as an Assistant Economist. Cathie received her Bachelor of Science, summa cum laude, in Finance and Economics from the University of Southern California.(ARKFunds)
We will be working out of a Jupyter Notebook. We will use the Alpaca API to make our API call. We will be using hvplot to make our interactive visualizations. We will use the MCForecast tool to do our MC Simulation.